At last, an SNP minister has begun to talk sense about the economy

PREMIUM

THE idea that Scotland might win its independence next year is beginning to seem plausible to me. This is not merely because one opinion poll has shown a possible majority in favour of it, though I’m glad that has happened. Nor is it because of the rising clamour for unconstitutional action if constitutional means do not succeed, since I believe that only constitutional means should be used.

No, it is because the Scottish Government has started, just started, to talk sense about economics, after a dozen years in which it talked little but nonsense. The best examples of the nonsense always come at SNP conferences, when endless lavish promises are made to an ecstatic rank-and-file with never a moment’s thought of how it is all going to be paid for. A party behaving like this is not really interested in independence, only in self-indulgence. Even now the party talks mostly nonsense, but through its dark cloud of ignorance a few shafts of light have pierced.

The evidence that persuades me is a sudden desire to discuss productivity – always a subject dear to this column, since it is the key to the future prosperity of Scotland. The desire has emerged against the odds. The Government contains 12 cabinet secretaries, and I would be surprised if more than a single member could define productivity. But there are in addition 16 junior ministers and one of them, Ivan McKee, has now linked up with the Scottish Council for Development and Industry to form a Productivity Club.

Does Ivan McKee's new initiative signal a change of tack from the SNP government?

The club is designed with the specific needs of small and medium enterprises in mind: they can join it and take part in it for free, learning all the different ways in which they might make themselves more productive. It is aimed at them because they find it notoriously hard to stay afloat, especially during their first year or so, when the energies of the founding entrepreneurs may be overtaxed with accessing the markets they need to service their customers, pay their workers, settle with their suppliers and satisfy their investors. They hardly have time to think about longer-term issues or get to grips with unfamiliar problems. That is why they go bust in droves. If we can save more of them the whole economy will be the better for it, because it is out of wee acorns that mighty oaks grow.

The ministerial initiative is timely, for we find ourselves in the middle of a productivity crisis. It has hit us even though in some ways the great financial crash of a decade ago has been overcome. Employment in Scotland is now nearly 200,000 higher than it was in 2010. Three-quarters of the population aged between 15 and 64 are in a job. After a decade of stagnation in real wages, these are starting to creep up again. But there is a darker side to the statistics, and still many workers struggle to make ends meet.

Clearly it is better for people to be employed than unemployed. But new jobs will never make us much richer per head if they are not especially productive in the economic sense. For an economist, productivity means the output an enterprise is going to get for its inputs, whether of labour, capital or technology. When employees work harder, or when the company makes higher profits or when it invests in more efficient equipment, all this points towards higher productivity.

If that is not achieved, the consequences may go beyond a single enterprise because they reflect underlying forces tending to depress living standards in the whole of society. Here in a nutshell is the story of the Scottish economy in the last decade: suffering from the aftermath of deep recession, having neither the powers nor the energy nor the knowledge to counteract it.

Scotland is not the only one. The UK as a whole has done little better, and indeed all the big industrial countries have fared badly, though none as badly as we have. At the moment it takes a UK worker five days to make what an American, French or German worker makes in four days. This gap is of long standing, but in recent times it has widened. While in Scotland we have 200,000 extra people employed, they are not producing as much per head as the older workforce used to do.

It may seem miraculous that today Scotland, with unemployment under 4%, has a lower rate than Germany, where it stands at 5%. Yet Germany was until recently enjoying a boom (now coming to a sharp stop), whereas Scotland has remained sluggish throughout. It seems, then, that given a choice between higher productivity and higher employment, the Germans will choose the former because it makes the nation richer – in the end, for everybody.

It’s not that, inside the Union, Scotland has full freedom of action though I guess we would choose higher employment anyway. In that case, I fear we just have to accept a trade-off: those newly employed workers will not earn as much in our less productive economy. No doubt different Scots will express different preferences, but the problem is certainly one we should think about (as we don’t).

Margaret Thatcher economic policies cost the jobs of more than three million people

Productivity versus employment: the dilemma is, after all, not unfamiliar to us. The last time we faced it in such acute form was under Mrs Thatcher. We didn’t really talk in these terms at the time, but we might say her whole economic policy was an attempt to improve the productivity of the UK. She succeeded in that but we had to suffer unemployment of 3 million and more, while some people made fortunes. Basildon boomed and Motherwell missed out. We have come a long way since then, and even the austerity of a new generation of Tories since 2010 has never brought the same drastic divide.

At the same time, I don’t think the dilemma has gone away either.

It remains in part a regional problem, no longer so much between Scotland and England as even within Scotland. Edinburgh remains the most dynamic part of the country and it has overcome the crash of 2008 in astoundingly fine fettle, forging ahead from its battered financial industry into the new digital economy. On the other hand, I was recently in Kilmarnock, and you would think time had stood still since Mrs Thatcher resigned in 1991. When I got home I looked up the unemployment rate – sure enough, 7.5%.

East Ayrshire is run by the SNP: the combined efforts of local authority and national government have not revived this blighted town. Surely it is time to ask whether, over these 30 years, rescue has been conceived in the right terms. Thank heaven for the Productivity Club, yet when I look at the policies otherwise being pursued in Scotland today I see an overwhelming preoccupation with Brexit and with the politics of welfare. Spending on the past has come to overwhelm investment in the future.

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